Santander agrees to buy Sabadell's TSB unit for $3.6 billion

Bloomberg

Banco Santander agreed to buy Banco Sabadell's U.K. unit for 2.65 billion pounds ($3.64 billion), a deal that will make it the U.K.'s third-largest lender by some measures.

The all-cash transaction will see the combined firm serve nearly 28 million customers in the U.K., according to a statement by Santander. TSB has about 2% of the U.K. mortgage market and will also add £35 billion in customer deposits to the £181 billion that Santander U.K. held at the end of 2024.

The enlarged firm would be the third-largest U.K. bank by personal current account balances and the fourth-largest by mortgages with a 12% market share, Santander said. That would cement its place as one of the U.K.'s largest lenders, alongside NatWest Group, HSBC Holdings, Barclays and Lloyds Banking Group.

The transaction "expresses our confidence in our strategy, but also in the UK market," Chair Ana Botin said on a call with analysts.

READ MORE: How Santander is transforming for the future

The combination of TSB with Santander's existing U.K. operations is expected to lead to cost savings of at least £400 million, or 13% of the two lenders' cost base, the Spanish bank said. That raises the prospect of branch closures and job cuts although Santander CFO Jose Cantera said on Bloomberg TV that the planned savings will also come from winding up projects that TSB is running "that we will not need to do when the two banks merge."

Sabadell expects the final price to be closer to £2.9 billion to account for adjustments to its tangible net asset value by the time the transaction is completed, it said in a separate statement.

The lender said it would pay out an extraordinary dividend of about €2.6 billion upon closing, expected in the first quarter of next year. The deal requires approval from regulators and Sabadell's shareholders.

Sabadell shares were up 2.5% and Santander shares traded 1.5% higher in early trading in Madrid.

Bloomberg News reported last week that Barclays and Santander were the main contenders left in the race to buy the U.K. bank.

The deal comes as Sabadell is facing a takeover bid from its competitor BBVA, which it has rejected. BBVA said Monday that it's proceeding with the pursuit even though the Spanish government has said it wouldn't be able to integrate the target for several years if the offer is successful.

The sale of TSB is seen by some analysts as a defensive move designed by Sabadell to help it fend off BBVA.

"The proposed deal is positive for both" Santander and Sabadell but it may "complicate" BBVA's takeover bid, KBW analyst Hugo Cruz said in a note. The transaction "could force BBVA to raise their offer if they want to succeed in the acquisition."

Sabadell has said the TSB sale is unrelated to the BBVA bid.

The deal "constitutes a strategic opportunity and is extraordinarily beneficial to Banco Sabadell and its shareholders, irrespective of the voluntary takeover bid" from BBVA, Sabadell said in its statement.

Sabadell ownership

Sabadell acquired TSB for about £1.7 billion a decade ago. The business struggled with a technology upgrade that led to a lengthy service outage and regulatory fines — though, more recently, higher interest rates and a focus on costs have helped improve performance.

TSB reported a statutory profit before tax of £290 million for 2024, up £53 million on 2023, and a record since returning to the high street in 2013. Its tangible book value was around £2.1 billion at the end of the first quarter, Alantra analyst Francisco Riquel said in a research note last month.

Sabadell previously considered selling TSB in late 2020, shortly after official talks with BBVA about a merger had fallen apart over price disagreements, Bloomberg has reported. The bank rejected a bid from Co-operative Bank Holdings Ltd. a year later.

For Santander, the deal comes after it sold most of its Polish operations to Erste Group Bank for about $8 billion. That has left it with plenty of financial firepower to explore deals even after it set aside around half of those proceeds to repurchase its own shares.

The purchase of TSB is in line with Santander's strategy of pursuing bolt-on acquisitions, and the bank still has capital for more deals, Botin said on the analyst call Tuesday. Santander isn't contemplating any other transactions, she said.